Background
The European Commission (EC) and national EU governments have long acknowledged that foreign direct investments (FDI), while key to sustaining competitive economies, may pose risks to national security or public order. In response to such risks, most EU Member States have established national FDI screening regimes for investments in sensitive areas. Simultaneously, the EC has sought to harmonise and strengthen these efforts through the introduction of the EU Foreign Direct Investment Screening Regulation (EU FDI Screening Regulation), which created a cooperation mechanism between the EC and Member States for foreign investments affecting critical infrastructure and technologies within the EU.
Despite these developments, Cyprus has been more reluctant to introduce such screening rules, largely due to its longstanding strategy of positioning itself as an attractive, low-tax destination for foreign investments. As a result, and following Greece’s recent introduction of its own FDI screening Regime in May 2025, Cyprus remained one of only two EU Member States without an operational FDI screening regime (alongside Croatia). The evolving geopolitical environment1, coupled with sustained pressure from the EC, including through the EC’s recent proposal to revise and strengthen the EU FDI Screening Regulation by making FDI screening mandatory for all Member States, has compelled the Cypriot government to reconsider its position and recognise that the absence of FDI screening rules is no longer viable.
Consequently, on 3 July 2025, the Cypriot government finally put forward a revised bill On the Establishment of a Framework for the Screening of Foreign Direct Investments Law 2025 (Cypriot FDI Proposal). This proposal replaces an earlier draft proposed in March 2024 and is designed to bring Cyprus into alignment with the EU FDI Screening Regulation. The Cypriot FDI Proposal will establish a formal screening mechanism for investments originating from outside the European Economic Area (EEA) and Switzerland, requiring foreign investors to obtain approval from the Cypriot government prior to completing any investment that falls within the scope of its rules.
What triggers a Cypriot FDI filing? – scope and thresholds
The proposed Cypriot FDI screening regime is mandatory and requires foreign investors to notify their proposed investments for prior approval whenever all of the following conditions are met:
- Foreign investor: The investment is by a foreign investor, meaning a non-EEA/Swiss natural or legal person. The mandatory notification obligation also applies to investments by legal persons:
- in which at least 25% of the share capital and/or voting rights are held by a foreign investor; and/or
- whose ultimate beneficial owner is a foreign investor; and/or
- which are de facto, either directly or indirectly, controlled by a foreign investor.
- Interest acquired: The investment leads to:
- the initial acquisition of at least 25% of the shares/voting rights of a strategic entity, or equivalent decisive influence over a strategic entity, including through the establishment of joint ventures involving existing entities or business activities2, or
- the subsequent increase of an existing stake in a strategic entity (irrespective of its initial size or whether it has been previously approved) from below 25% to a stake of at least 25%, or from below 50% to at least 50%, irrespective of the value of the investment.
- Transaction size: For initial acquisitions, the value of the investment must be at least €2 million, taking into account the investment value of any linked transactions between the same parties within the past 12 months. Where an existing stake is increased from below 25% to at least 25%, or from below 50% to at least 50%, there is no transaction size threshold.
- Sectoral scope: The investment relates to a strategic undertaking, meaning an entity active in Cyprus in any of the sensitive sectors listed in the Annex of the Cypriot FDI Proposal. This encompasses entities active in critical infrastructure in energy, transport3, water, health, education, tourism, communications, media, data processing and/or storage, defence, electoral or financial services, and sensitive real estate. It also covers entities active in dual-use goods, as well as critical technologies such as AI, robotics, semiconductors, cybersecurity, space, quantum, nuclear, nano- and bio-tech, and entities supplying critical inputs, including energy, raw materials, and food security.
Investments falling within the scope of the Cypriot FDI screening regime cannot be closed prior to FDI clearance by the Cypriot authority. Failure to notify an investment that falls within the scope of the Cypriot FDI Proposal can lead to administrative fines on foreign investors of at least €5,000 and up to €50,000, as well as a potential order to unwind the investment.
Importantly, the Cypriot Authority may call in any non-notifiable investment that could affect security or public order within 15 months of closing.
Filing timeline and procedure
Investors must submit an FDI filing at least 10 calendar days before completion of the investment. The filing must include information regarding both the foreign investor and the strategic entity, including their turnover and number of employees; their full ownership chain and ultimate beneficial owners; their business activities (both in Cyprus and abroad); information regarding any prior sanctions or criminal records; and whether they have been involved in any EU-wide sensitive projects. The foreign investor must also provide information on the value and structure of the deal and the funding sources for the investment.
Following the submission of a complete filing, the Cypriot authority must complete its initial review (Phase 1) within 20 working days to decide whether the investment will be subject to in-depth screening, and it must inform the foreign investor of its decision within five working days from the date of its decision, i.e., Phase 1 cases may last a maximum of 25 working days.
For in-depth Phase 2 reviews, the authority will have an additional 65 working days to finalise its review from the date it decides to open in-depth proceedings. During the Phase 2 review, the Cypriot authority will circulate the filing through the EU cooperation mechanism to other Member States and the EC, who may provide comments or opinions that Cyprus must ‘duly consider’. Once the authority reaches its decision to approve the transaction unconditionally, clear the transaction subject to conditions, or prohibit/unwind the investment, it must inform the foreign investor within five working days from the date of its decision, i.e., Phase 2 cases may last a maximum of 95 working days.
At any stage, the authority may request additional information and data. If it does, the statutory deadlines are suspended until all requested information and data is provided.
Impact
The Cypriot FDI Proposal is expected to enter into force in the first quarter of 2026 and will thereafter significantly alter the way foreign investments are conducted in Cyprus. Foreign investors contemplating investing in strategic sectors in Cyprus, such as the soon-to-be fully liberalised energy sector, should seek legal advice to ascertain the potential impact of this new regime on their envisaged investment, and update their transaction documents and timelines. Parallel filings under EU or Cypriot merger control rules, FDI rules in other jurisdictions, or the Foreign Subsidies Regulation may also be needed, requiring that investors and their legal counsel manage these growing regulatory complexities in a coordinated, streamlined, and strategic manner.
- Cyprus, despite its small size (approx. 0.2% of the EU’s total GDP as per Eurostat figures), hosts 8.6% of all Russian-controlled companies in the EU (page 39 of the EC’s Fourth Annual Report on the screening of foreign direct investments into the Union, published in October 2024).
- It is currently doubtful that the Cypriot FDI Proposal would apply to greenfield investments, since the definition of ‘strategic undertaking’ implies that such an undertaking must have activities in Cyprus or sell goods or services in Cyprus.
- Shipbuilding and vessel transfers are generally excluded from the scope of the Cypriot FDI Proposal, with the exception of Floating Storage and Regasification Units (FSRUs).
Client Alert 2025-199